Live and learn

Here’s a quick update, especially for those of you in the market for a property. Some time in September 2017, I reminded prospective purchasers of properties to be mindful of the 2016 Malaysian budget announcement that transfers of RM1,000,000/- and above will be subject to an increased stamp duty of 1% and this was to take effect from 1st January, 2018 (See my earlier post at http://samchoong.com/2017/09/06/stamp-duty-increase-property-transfers-wef-1st-january-2018/). Well, some good news! It would seem, after its first reading in the Malaysian Parliament recently, this proposed increase is to be put on hold for the time being as the Stamp (Amendment) Bill 2017 has been withdrawn in Parliament.

Estate Duty and Inheritance Tax

Speculation has been rife, over the past two months, that estate duty or inheritance tax would be reintroduced. This rumour isn’t new. In fact, such talk has recurred over the years.

This, in turn, spurred my high net-worth clients to research and attend talks by private banks with wealth preservation departments, as well as promoters of offshore financial centres. This, as opposed to it’s nebulous relation, the tax haven. These places range from nearby Labuan to exotic jurisdictions like the BVI & Cayman. Out of curiosity, and to better understand my client’s needs, I too attended such presentations.

Wealth Preservation Talks

These talks usually consist of sales representatives from private banks or fund managers extolling the virtues of setting up generic, or boiler plate, on shore or off shore trusts or foundations. Legal terms and representations are made repeatedly. These include terms such as “firewall”, “control retained by the settlor through ‘protectors'” or “letters of wishes”, along with the use of seemingly simple charts. The representatives offer trusts or foundations as an all encompassing solution to estate planning and wealth preservation needs of those attending.

The Malaysian Budget

They announced the Malaysian Budget last Friday, 27th October 2017. Therefore, it’s a busy time for tax accountants and us lawyers. We have to juggle our work and digest the parts of the law which concern our areas of practice. I’m happy, however, to report there has not been any imposition of estate duty.

Estate Plan

So, with the long list of ‘help’ at hand, who should the prudent high net-worth person go with to estate plan?

Rather than suggest the structures mentioned above as an all encompassing panacea for the ‘ails’ of my clients, I prefer a different approach.

On the surface, the template structures often talked about at seminars, namely trusts or a foundation, are relatively simple concepts. A settlor, in the case of a trust, is the person who sets it up. In the case of a foundation, they are called a founder. Similarly, a trustee or council member respectively are who manage the structure. Finally, in both structures, the beneficiaries are the people provided for.

In practice, however, there are numerous types of such structures. Whichever structure you choose, and the way the aforementioned people are placed, may differ depending on the needs of the client.

The Laws for Inheritance Tax

Laws where these structures are set up may differ from the laws where the creator, subject matter assets, or parties being provided for, are. The pros & cons of which are well covered by the promoters/private banks/lawyers setting up such structures. All the speakers seemed unaware or ignored this basic, but fundamental, piece of the puzzle.

Both the person setting up the structure, and the person being provided for, may be in different jurisdictions. It is not uncommon, at least in my experience, for us to appoint a team of specialist advisers across jurisdictions and areas of law to advise on one estate.

What To Do?

I would therefore start by ascertaining the needs of the clients. Namely are they looking for protection against forced heirship, creditor claims, inheritance tax and/or looking after a family member needing guidance. Then, I would study the laws relating to the subject matter of interest to the client. Namely, I would study the laws of the possible jurisdiction where the structures are to be set up, calling in “outside” experts where necessary. Size does matter after all, and in this case being small and unrestricted by affiliations has its advantages. We then advise on the appropriate structure, in the appropriate jurisdiction, for the client.

Estate Duty/Inheritance Tax in Malaysia

As for estate duty or inheritance tax in Malaysia, this is a bit tricky. The laws have not yet been drawn up, if indeed they ever will be. Therefore, to create a structure and move assets in, and incurring stamp duty should be considered in order to avoid it being wasted.

Worse still, if the structure doesn’t work, further stamp duty and possible gains tax may be incurred. Assets will have to be transferred into a further structure. Take, for example, the UK and the Inheritance Tax Act, 1984 which is being updated by Finance Bill (No.2) 2017. This Act has resulted in those setting up offshore company structures having to undo or “de-envelope” such structures.

What Next?

So, how does one estate plan for a law that has yet to be drawn up? I would take into account the points mentioned above and consider how the latest inheritance tax laws are drafted in the leading financial centres around the world, as the Malaysian drafters are likely to take their cue from there.

Jazz has always struck a chord with me. Men and women dressed to the nines in their elegant frocks and black ties, all for the occasion and what an occasion it was! The Big Band Jazz concert exhibited the best of jazz from a bygone era of art deco and sophistication; the Great Gatsby, Ellington, Count Bassie. It’s the very best of music, fused with sartorial elegance.

It’s a period I totally connect with. On my travels, I’d check out jazz clubs as often as possible. I’ve been to wonderful places, such as the Blue Note in Tokyo and the Fairmont Peace Hotel in Shanghai (but that’s another story for another day).

Jazz at the Philharmonic

At the end of September, I received the “Jazz @ the Philharmonic” invite. Immediately, I got to work and rounded up a dozen like-minded friends and MM2H clients. I informed them about the mid-week jazz concert by the Penang Philharmonic Orchestra. The event was at its home, The Star Pitt Street on Jalan Masjid Kapitan Keling in Georgetown’s old quarter. Built in 1906, this was previously the base for the home-grown Penang Star newspaper. However, they soon outgrew this charming old building, and now the 2nd floor, which used to be the administrative office, has become the base of the Penang Philharmonic Orchestra. I’ve attended concerts by Jerome Quah before and they’ve been consistently outstanding, so expectations were high.

Jerome Quah

Jerome Quah, whose passion is musical improvisation, found an affinity with Jazz from a young age. His lecturer at the University Sains Malaya, the Jazz Maestro, Jeep, introduced him to this genre of music and he found his passion. Furthermore, he led about 20 volunteer musicians from the local community, ranging from teachers and students of music to engineers and MM2H retirees, all with one thing in common: their love for Jazz. Standards by Ellington and Hancock, such as “Watermelon Man”, “Take the A train” and an original, aptly called “Island Breeze” by Mike Tomaro, became firm favourites.

The musicians took turns to play their solo pieces and exhibit their own take on the pieces. It was an hour of magic. We were transported back to 1930s; back to elegance and sophistication.

Myself and my guests were both thrilled. The music lived up to the hype and the charm of the building — a place I recommend keeping an eye on for future events.

About a month ago, I caught up with some Singapore and BVI trust lawyers over some off shore trust work. Coincidentally, on my return, WhatsApp messages started trickling in, asking whether inheritance tax will be introduced in the upcoming budget. I, of course, immediately thought that an article on inheritance tax or death duties would be timely. Unfortunately work got in the way and Esther Lee of the Edge Malaysia has actually done a credible write up on the topic. I’d like to refer you to the article below and I shall follow this up shortly with my own about how I would estate plan in the event inheritance tax or estate duty becomes a reality in Malaysia.

On a trip to Kuala Lumpur last week, I was discussing the acquisition of an oil palm plantation with clients when the issue of disbursements such as estate land board application & registration fees, stamp duty on the instrument of transfer cropped up. Although my team & I are aware, as announced in the 2017 Budget, the stamp duty on the instrument of transfer for amounts over RM1,000,000/- is set to increase from 3% to 4% WEF 1st January 2018, it was only then that the magnitude of the proposed amendment to the Stamp Act dawned on us, which is the reason for sharing this write up.

Because, even if you’re not planning on purchasing a large plantation, it might be something worth looking into. For instance, if you were to purchase a property worth RM2,000,000 after 1st of January, 2018 as opposed to today, the increased cost to you could potentially be RM10,000/-. So, rather than wait till December 2017 when it is anticipated “panic” signings will occur and when most people tend to be on leave, why not think of entering into your purchases now? Something to mull over!

I caught up recently with my sister, Tiffany, who coincidentally also just visited and reviewed a place I’ve been meaning to check out (great minds!). It’s called the Habitat Penang Hill, and it’s a nature trail & canopy walk run by two close friends of our family, Freddie and Allen. The Habitat trail takes you past 3 of Penang Hill’s oldest historic bungalows and rainforest. Read more about the Habitat at Penang Local, my sister’s website on everything Penang.